Triffin: Dilemma or Myth?

Triffin gained enormous influence by reviving the interwar story that gold scarcity threatened deflation. In particular, he held that central banks needed to accumulate claims on the United States to back money growth. But the claims could eventually surpass the US gold stock, and then, central banks would stage a run on it. He feared that the United States might reduce the supply of dollars and cause global deflation. However, not US prudence and global deflation, but US profligacy and global inflation ensued. Moreover, we show that the US gold position after WWII was no worse than the UK position in 1900. Yet it took WWI to break sterling’s gold link. Could, contrary to Triffin’s framework, better and feasible US policies have kept Bretton Woods going? This history serves as a backdrop to our critical review of two later extensions of Triffin. One holds that the dollar’s reserve role required US current account deficits. This current account Triffin is popular, but not demonstrated. Nevertheless, it pops up in debates over the euro’s and the renminbi’s reserve roles. A fiscal Triffin holds that global demand for safe assets will either remain dangerously unsatisfied or force excessive US fiscal debt. This story overstates demand for safe assets and the inflexibility of their supply. Thus, these stories do not convince in their own terms. Moreover, each lacks Triffin’s clear crossover point from stability to instability. Triffin’s seeming predictive success leads economists to wrap his brand around dissimilar stories. Yet Triffin’s dilemma in its most general form correctly points to the conflicts and difficulties that arise when a national currency serves as an international public good.